The global supply chain is feeling the effects of Iran-backed Houthi rebels attacking ships in the Red Sea. Freight rates are expected to surge on Monday as longer transit times in Africa disrupt and delay product deliveries.
Ships are unable to return to Asia in time and carriers are canceling sailings at short notice, both as a result of ship diversions, Honor Lane Shipping told customers in an email.
Spring clothing, footwear, housewares, electronics, patio furniture and pool supplies are just a few of the products on these rerouted ships. British clothing retailer Next recently warned of stock delays as a result of more ocean transit. Ikea also warned in December of its own supply chain problems as a result of the Red Sea.
“Rerouting ships leads to longer transit times and increased costs,” Jon Gold, vice president of supply chain at the National Retail Federation, told CNBC. “Unfortunately, the more disruptions occur, the more challenges will arise in ensuring the reliability and efficiency of the supply chain.”
Gold said retailers are working to implement mitigation strategies to avoid further disruption by increasing core shipment orders and diverting shipments to the West Coast.
Longer journeys also increase the cost of fares.
“This creates strong incentives for carriers to increase rates by introducing General Rate Increases (GRIs), Peak Season Surcharge (PSS) and other emergency or emergency surcharges,” the company said. “HLS has warned that Transpacific freight rates could soar to highs not seen since early 2022, with the Suez Canal route suspended and the Panama Canal route restricted.”
MSC, the world’s largest carrier, was the first shipping company to publish rates for the second fortnight of January. Starting Monday, container rates for MSC customers will be $5,000 for US West Coast routes, $6,900 for East Coast routes and $7,300 for Gulf of Mexico routes.
“This is truly an unexpectedly large rate increase,” HLS wrote.
Under the US Shipping Act, all carriers must give a 30-day notice requirement before they can impose surcharges, or GRI, but the Federal Maritime Commission has waived this for shipments from Asia to the US that are rerouted around from the Cape of Good Hope, South Africa.
Kuehne + Nagel analysts told CNBC that 419 ships are currently being rerouted due to the situation in the Red Sea. Total container capacity is estimated at 5.65 million twenty-foot equivalent units (TEUs, or containers), worth a total of $282.5 billion, according to calculations using MDS Transmodal estimates that trade in a single TEU is valued at $50 million .
Vessel volume in the Suez Canal has fallen 61 percent to an average of 5.8 vessels per day, compared with the volume before the Houthi attacks, according to logistics data firm Project44. Egypt, which owns and operates the Suez Canal, charges between $500,000 and $600,000 per ship passage. This results in massive losses for a country already hit by a declining tourism industry and skyrocketing inflation.
Meanwhile, Tuesday’s large-scale attack by the Houthis is fueling expectations that the diversionary route around the Horn of Africa will stabilize further.
“As most carriers at the moment are still completely rerouting anyway, we’re not seeing more segments than before,” Franziska Bietke, communications director of global maritime logistics at Kuehne + Nagel, told CNBC on Wednesday. “The scale of yesterday’s attack is likely to reinforce the position of the world’s air carriers that the passage is too dangerous.”
The ship’s schedule changes are now on a daily basis, according to Bietke.
“The situation is extremely fluid and volatile,” he said.
Logistics companies are also warning customers about container shortages. This is something shippers haven’t experienced since Covid. Due to transport delays, the containers are not where they should be.
Mark Rhodes, regional director of ocean products for Asia-Pacific at Crane Worldwide Logistics, explained to CNBC that containers arriving in Europe via the diversion route will have to return to manufacturing hot spots in Asia.
“The container shortage remains fresh in our memories since the COVID pandemic,” Rhodes said. “The outbound leg from Asia to Europe is just the beginning of what could be more turbulent in 2024.”
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